Accountants’ perceptions of financial reporting quality in Vietnam and their ethical sensitivity to earnings management

The purpose of this study is to examine accountants’ perceptions of the quality of financial reporting in Vietnam and their ethical perceptions of earnings management practices. This research also examines the possible influence of earnings management and culture on accountants’ ethical awareness, ethical judgments and ethical intentions. This research comprises two stages. Firstly, semi-structured interviews were conducted with 16 professionally qualified senior Vietnamese accountants. The purpose of these interviews was to examine their perceptions of the financial reporting environment within their country, and their understanding of earnings management and how the cultural environment might impact on perceptions of this practice. The second stage of this research used an experimental design to examine responses to two earnings management vignettes. Data were gathered from a large sample (592) of experienced Vietnamese accountants. Ethical responses were evaluated by manipulating two earnings management vignettes: operating earnings management, and accounting earnings management. The possible impact of culture was also examined through these manipulations.

The study findings indicate that accountants generally believe that Vietnam has made great strides in improving financial reporting quality but that many challenges remain. For example, adoption of IFRS is inhibited by lack of training and understanding and a reluctance to move towards a ‘fair value’ approach to valuing assets and liabilities. Moreover, understanding of the concept of earnings management is not strong. The study’s findings show significant variation in accountants’ perceptions of different earnings management scenarios, depending on the type of earnings management practiced, and the underlying work environment, representing cultural dimensions, in which the earnings management action was taken. For example, accountants generally perceived accounting earnings management to be less ethical than operating earnings management. Vietnamese accountants also generally felt that the practice is not ethical but also believed that it is common within their country. They also believed that the possibility that their peers would practice earnings management was greater than the possibility that they would practice it themselves.

The present research contributes to the literature in several ways. It is the first study to examine a combination of ethical awareness, ethical judgments and ethical intentions, within an earnings management context, among accountants in a developing country. In addition, the study contributes to the literature on ethical attitudes toward operating earnings management and accounting earnings management, by accountants within different cultural contexts.